BNY Mellon: A Familiar Tale

January 3, 2019

By Neil Mellor, Senior Currency Strategist, BNY Mellon

By Neil Mellor, Senior Currency Strategist, BNY Mellon

With just two days ticked off the calendar in 2019, asset prices have begun the year in much the same way they concluded the last one: stocks remain under pressure while sovereign yields continue to head south at a fairly rapid pace.

It is fair to say that a US-Sino trade deal – the market’s MacGuffin - cannot come soon enough, although a People’s Daily commentary yesterday suggested that it may take every one of the 57 days before the March 1 deadline for any accord to be reached.

Of course, chronic uncertainty on this front has already taken a serious toll in real terms and in conjunction with the multitude of issues facing the global economy, this turmoil means we begin the new year on a note as somber as any this analyst can remember.

All things considered, just how far a US-Sino deal can go in restoring confidence is far from certain.

The latest data continue to point to stagnation in Chinese manufacturing, while the eurozone ended the year firmly on the back foot. In the UK, a better December PMI was largely down to manufacturers building stocks in preparation for any Brexit-related disruption.

Trade aside, the continued malaise across financial markets rather focuses our attention on the Fed and the status of the ‘put’.

We noted recently that the market is pricing in less than a 50% chance of a Fed hike this year, despite median dot plots pointing to two over the period